Gold spot price: Physical demand up, but a lot of buyers await lower prices

Gold currently trades above its lowest since 9 July

Gold spot price: Physical demand up, but a lot of buyers await lower prices Friday, November 22th:_ The XAU/USD yesterday lost 0.31 percent having closed at 1244.09 and taking into account its worst weekly performance thus far intraweek since September. Before this event the price had dropped to its lowest point since 9 July at 1236.67, following positive US data: October Core PPI m/m grew by 0.2 percent, November Flash Manufacturing PPI rose to 54.3 points and Unemployment Insurance Initial Claims fell by 21,000 to 323,000 last week. The unemployment data supports expectations of Fed policy makers for further improvement in the labour market, which is expected to give a green light to the central bank to begin reducing the financial stimulus into the US economy over the coming months.

Gold has tumbled 26 percent this year amid expectations that the Fed will start to lower the rate of bond purchases from the current level of $85 billion a month. These expectations halted a 12-year uptrend in the precious metal.

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According to the National Interbank Funding Centre, China will begin gold swaps trading on the interbank market on 25 November, providing more hedging tools to banks dealing with the precious metal. The China Foreign Exchange Trade System based in Shanghai is due to start the action, with the Shanghai Gold Exchange accountable for settlement and delivery.

China is currently attempting to open up its gold market and increase financial investment flow into the country.

CME Grouped yesterday announced that it was lowering margins for gold, silver and copper futures, effective as of Monday next week. The modifications were the result of “the normal review of market volatility to ensure adequate collateral coverage,” according to a notice from CME.

Margins act as guarantee which traders must have to back their futures trades. The 100-ounce gold contract will now require an “initial” margin of $7,975 rather than the prior $8,800 on the NYMEX, while the “maintenance” margin for existing positions and all hedge trades will need a backup of $7,250 (down from $8,000).

The world's biggest gold-backed ETF SPDR Gold Trust’s holdings yesterday dropped by 3.6 tonnes to reach 856.71 tonnes – their lowest level since early 2009. The fund’s outflows have equalled 450 tonnes thus far in the year.

Physical demand of gold lifted slightly with the price decreasing but dealers think that most buyers are still on the sidelines and await further declines.

International Monetary Fund Data today revealed that the German Bundesbank trimmed its gold holdings by 3.421 tonnes in October for federal coin minting – the second cut in five months.

Press releases from the middle of the week say that gold mines’ output from all over the world is expected to reach record highs this year, which is a disappointing news for bulls who had been anticipating production cuts. Mining companies clearly hope that increasing output will allow them to maintain revenue and profit levels despite lower prices; The UK Financial Conduct Authority is considering a review of gold benchmarks; According to Goldman Sachs the price of gold is set to drop further by 15 percent in 2014.

At press time gold spot price is at 1246.10.

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